Cost Accounting for Spoilage Help

[dbilon2]

I am having trouble accounting for spoilage problems in my cost accounting class. I was hoping someone can please guide me on how to answer this type of problem. I get confused on the spoilage part as well as when the problem says that direct materials are added at the 50% point. What should I be looking for?

The answer is supposed to be C, but I don't know how to get that number. I have been trying for hours and some help would greatly be appreciated.


Beginning work in process consists of 7,000 units, 55% complete. 50,000 units were started and ending work in process is 5,000 units, 25% complete. Normal spoilage is equal to 10% of the units inspected. The inspection point occurs at the 20% point and 7,000 units were rejected. Direct materials are added at the 50% point, direct labour at 30% and overhead is applied uniformly. The costs per equivalent unit are: direct material $1.00; direct labour $1.50; overhead $2.00.

The cost of the ending work in process is:

a. $2,500
b. $2,850
c. $2,700
d. $4,000

 

[Triest123]

I am having trouble accounting for spoilage problems in my cost accounting class. I was hoping someone can please guide me on how to answer this type of problem. I get confused on the spoilage part as well as when the problem says that direct materials are added at the 50% point. What should I be looking for?

The answer is supposed to be C, but I don't know how to get that number. I have been trying for hours and some help would greatly be appreciated.


Beginning work in process consists of 7,000 units, 55% complete. 50,000 units were started and ending work in process is 5,000 units, 25% complete. Normal spoilage is equal to 10% of the units inspected. The inspection point occurs at the 20% point and 7,000 units were rejected. Direct materials are added at the 50% point, direct labour at 30% and overhead is applied uniformly. The costs per equivalent unit are: direct material $1.00; direct labour $1.50; overhead $2.00.

The cost of the ending work in process is:

a. $2,500
b. $2,850
c. $2,700
d. $4,000

=> "Direct materials are added at the 50% point, direct labour at 30%" means that
(1) the direct materals are added when the product is 50% completed, and
(2) the direct labour is added when the product is 30% completed

Since the ending WIP is only 25% completed, therefore there would be
"NO" direct material & direct labour is added to the ending WIP (i.e. the
equivalent unit for direct material & direct labour is "NIL", in other words,
no direct material & direct labour costs would be assigned to the ending WIP)

As the overhead is applied uniformly, so only the overhead costs would be
assigned to the ending WIP.

The costs of the WIP is (5,000 x 25%) equivalent units x $2
= $2,500

The answer is "A"